>> GROUP: Shadow ECB Council / EZB-Schattenrat  Dr. Elga Bartsch

Dr. Elga Bartsch: In terms of tapering, the current upside surprises in economic activity and inflation do not mean that the ECB can already start tapering the expansionary degree of its monetary policy. In my view, the underlying uptrend in inflation is currently not enough to justify such a step. The decision to reduce the pace of the asset purchase programme from April onwards and at the same time stretch it until December is welcome against the backdrop of an improving economy and forthcoming elections. But a growing tendency to politicize the ECB and its monetary decisions would be a cause for concern. In this regard, the decision of the ECB Governing Council - apart from limited and temporary deviations - to continue basing purchases of sovereign bonds on the capital key, should be viewed in a positive light.

The fact that a number of Council members voted against an extension of the asset purchasing programme, pleading instead for the programme to be phased out, shows that tapering is already a theme that is being discussed within the ECB, even if probably not in much detail. In my view, this discussion should be intensified only from the summer onwards so that the ECB can announce that the asset purchasing programme is to be wound down in the first half of 2018. But as the decision to continue the purchases until December 2017 has already been made, it seems pointless continue questioning this particular measure. The damage to the ECB’s credibility of going back on policy announcement would be very serious.

Hence, the only way to embark on a less expansionary course of monetary policy would be to raise the negative deposit rate. This is what the Shadow Council should be discussing.
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